Dana's Ribbon World makes award rosettes. Following isinformation about the company:Variable cost per rosetteSales price per rosetteTotal fixed costs per month$3.006.006000.00Required:1. Suppose Dana's would like to generate a profit of$1,160. Determine how many rosettes it must sell toachieve this target profit.2. If Dana's sells 2,180 rosettes, compute its margin ofsafety in units, in sales dollars, and as a percentage ofsales.3. Calculate Dana's degree of operating leverage if it sells2,180 rosettes4a. Using the degree of operating leverage, calculate thechange in Dana's profit if unit sales drop to 1,853 units.4b. Prepare a new contribution margin income statementto verify change in dana's profit.

Question
Asked Nov 14, 2019
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Dana's Ribbon World makes award rosettes. Following is
information about the company:
Variable cost per rosette
Sales price per rosette
Total fixed costs per month
$
3.00
6.00
6000.00
Required:
1. Suppose Dana's would like to generate a profit of
$1,160. Determine how many rosettes it must sell to
achieve this target profit.
2. If Dana's sells 2,180 rosettes, compute its margin of
safety in units, in sales dollars, and as a percentage of
sales.
3. Calculate Dana's degree of operating leverage if it sells
2,180 rosettes
4a. Using the degree of operating leverage, calculate the
change in Dana's profit if unit sales drop to 1,853 units.
4b. Prepare a new contribution margin income statement
to verify change in dana's profit.
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Dana's Ribbon World makes award rosettes. Following is information about the company: Variable cost per rosette Sales price per rosette Total fixed costs per month $ 3.00 6.00 6000.00 Required: 1. Suppose Dana's would like to generate a profit of $1,160. Determine how many rosettes it must sell to achieve this target profit. 2. If Dana's sells 2,180 rosettes, compute its margin of safety in units, in sales dollars, and as a percentage of sales. 3. Calculate Dana's degree of operating leverage if it sells 2,180 rosettes 4a. Using the degree of operating leverage, calculate the change in Dana's profit if unit sales drop to 1,853 units. 4b. Prepare a new contribution margin income statement to verify change in dana's profit.

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Expert Answer

Step 1

1. 

Sales price per rosette
Variable cost per rosette
Contribution margin per rosette
$6.00
$3.00
$3.00
$6,000
$1,160
$7,160
Fixed cost per month
Add: Target profit
Divide: Contribution margin per rosette
$3.00
2,387
Number of units must be sold to achieve the target
Therefore, 2,387 rosettes must be sold to achieve the target.
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Sales price per rosette Variable cost per rosette Contribution margin per rosette $6.00 $3.00 $3.00 $6,000 $1,160 $7,160 Fixed cost per month Add: Target profit Divide: Contribution margin per rosette $3.00 2,387 Number of units must be sold to achieve the target Therefore, 2,387 rosettes must be sold to achieve the target.

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Step 2

2.

Fixed cost per month
Divide: Contribution margin per rosette
Break even sales in unit
$6,000
$3.00
2,000
Actual sales
Less: Break even sales in unit
Margin of safety in units
2,180
2,000
180
Margin of safety in units
Multiply: Selling price per unit
Margin of safety in dollars
180
$6.00
$1.080
Margin of safety in units
Divide by: Actual sales
Margin of safety as a percentage of sales
180
2,000
8.26%
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Fixed cost per month Divide: Contribution margin per rosette Break even sales in unit $6,000 $3.00 2,000 Actual sales Less: Break even sales in unit Margin of safety in units 2,180 2,000 180 Margin of safety in units Multiply: Selling price per unit Margin of safety in dollars 180 $6.00 $1.080 Margin of safety in units Divide by: Actual sales Margin of safety as a percentage of sales 180 2,000 8.26%

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Step 3

3.

...
Sales (2,180x$6)
Less: Variable cost (2,180x$3)
Contribution margin
Less: Fixed cost per month
Profit
$13,080
S6,540
$6,540
$6,000
$540
Contribution margin
Divide by: Profit
Degree of operating leverage, if it sells 2,180 rosettes
$6,540
$540
12.11
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Sales (2,180x$6) Less: Variable cost (2,180x$3) Contribution margin Less: Fixed cost per month Profit $13,080 S6,540 $6,540 $6,000 $540 Contribution margin Divide by: Profit Degree of operating leverage, if it sells 2,180 rosettes $6,540 $540 12.11

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